US FINANCIAL MARKET

Tech Behemoths Drag on Stocks as Bonds Sell Off: Markets Wrap – Bloomberg, 8/17/2023

• Tech heavyweights dragged on US benchmarks with stocks poised to extend a slump into a third day, a global bond market selloff intensified.
• The S&P 500 erased early gains, the equities gauge has closed below a closely-watched technical level twice this week.
• The Nasdaq 100 fell 0.5% with Apple and Tesla weighing on the large-cap growth index.
• While many investors had believed that the Federal Reserve was done raising interest rates, that’s no longer a sure thing after minutes from last meeting suggested officials are considering tighter policy.
• Data showing the labor market remains healthy did little to change the narrative Thursday.
• Investors will be turning to the Jackson Hole conference in Wyoming next week to gauge Fed sentiment.
• The moves across bond markets have been sharp and swift this week.
• The 10-year Treasury yield rose as much as 6 basis points to 4.31% on Thursday, approaching the highest level since 2007.
• Japan’s 20-year bond yield surged after a debt auction drew tepid investor demand.
• Treasuries have been a key driver of the global debt selloff as resilience of the world’s largest economy defies expectations that a run of Federal Reserve interest-rate hikes would spark a recession.
• In the UK, the surge in gilt yields comes after sticky inflation and strong wage data boosted investor bets that the Bank of England will need to raise interest rates further to 6% and keep them high for longer.
• China also continued to weigh on sentiment.
• The picture emerging from property agents and private data providers suggest the slump in the real estate market may be worse than official reports show.
• These figures show existing-home prices falling at least 15% in prime neighborhoods of major metropolitan areas like Shanghai and Shenzhen.
• Elsewhere, Brent crude halted a three-day drop, trading up 1% at $84.25 per barrel.
• Gold edged up after closing below $1,900 an ounce for the first time since March.
• The Stoxx Europe 600 fell 0.8%.
• The Bloomberg Dollar Spot Index fell 0.1%.

Walmart raises full-year earnings forecast as grocery, online growth fuel higher sales – CNBC, 8/17/2023

• Walmart on Thursday raised its full-year forecast, as the discounter leaned on its low-price reputation to draw grocery customers and drive online spending.
• Revenue: $161.63 billion vs. $160.27 billion expected.
• Transactions increased by 2.9% and the average ticket rose by 3.4% for Walmart U.S.
• Same-store sales for Walmart U.S. grew by 6.4% in the second quarter, excluding fuel, compared with the year-ago period.
• That’s higher than the 4.1% increase that analysts expected, according to FactSet.
• At Sam’s Club, same-store sales rose 5.5%, excluding fuel, in line with analysts’ expectations.
• Sales for Walmart Connect, the company’s advertising business in the U.S., grew 36% year over year.
• E-commerce sales for Walmart U.S. also jumped 24%.
• In the grocery department at Walmart U.S., sales of private labels rose 9% year over year.
• Those brands make up 20% of Walmart’s total U.S. sales.
• Earnings per share: $1.84 adjusted vs. $1.71 expected.
• As of the end of the second quarter, inventory was down 5% compared with a year ago.
• Walmart said it now expects full fiscal-year consolidated net sales to increase by about 4% to 4.5%.
• It said adjusted earnings per share for the year will range between $6.36 and $6.46.
• That compares with its prior guidance for consolidated net sales gains of 3.5% and an adjusted earnings per share range of between $6.10 and $6.20.
• In a CNBC interview, Chief Financial Officer John David Rainey said Walmart saw “modest improvement” in sales of big-ticket and discretionary items like electronics and home goods during the quarter.
• He said he feels better about spending patterns than he did three months ago. Yet he described the consumer as “choiceful or discerning.”
• He said seasonal moments, such as the Fourth of July holiday and back-to-school, have helped drive sales.
• “Energy prices are higher and some customers face additional expense from the resumption of student loan payments in October. As such, we continue to be appropriately measured in our outlook.”

Cisco logs a strong quarter, pushing stock higher despite cautious full-year guidance – Market Watch, 8/17/2023

• Cisco Systems reported strong quarterly results, pushing its shares higher in after-hours trading Wednesday despite a mixed full-year forecast for fiscal 2024.
• Cisco reported fiscal fourth-quarter net income of $4 billion, or 97 cents a share, on revenue of $15.2 billion, up from $13.1 billion a year ago.
• After adjusting for stock-based compensation and other costs, Cisco reported earnings of $1.14 a share, up from 83 cents a share in the same quarter a year ago.
• Analysts surveyed by FactSet on average expected adjusted net income of $1.06 a share on revenue of $15.05 billion.
• Cisco’s Product ($11.65 billion) and Service ($3.55 billion) businesses were up 20% and 4%, respectively, year over year.
• Analysts on average expected total product revenue of $11.5 billion, according to FactSet.
• Cisco Chief Financial Officer Scott Herren said the company benefited from backlog orders dating to 2022.
• He added that Cisco has received about $500 million in AI-related orders, and can build AI features into existing products.
• “We are seeing solid customer demand, gaining market share, and innovating in key areas like AI, security and cloud. This momentum gives us confidence in our ability to capture the many opportunities ahead,” Cisco Chief Executive Chuck Robbins said in a statement announcing the results.
• For the current fiscal first quarter, Cisco executives guided for adjusted earnings of $1.02 to $1.04 a share in adjusted profit and revenue of between $14.5 billion and $14.7 billion.
• Analysts were forecasting adjusted earnings of $1 a share and revenue of $14.64 billion, according to FactSet.
• But full-year fiscal 2024 guidance was cautiously mixed: Cisco sees adjusted earnings of $4.01 to $4.08 a share on revenue of $57 billion to $58.2 billion.
• Analysts polled by FactSet are expecting $4.05 a share on revenue of $58.4 billion.

Hawaiian Electric Is in Talks With Restructuring Firms – Wall Street Journal, 8/17/2023

• Hawaiian Electric is speaking with firms that specialize in restructuring advisory work, exploring options to address the electric utility’s financial and legal challenges arising from the Maui wildfires, said people familiar with the matter.
• Hawaiian Electric is facing a selloff in its stock and bonds, and has been hit with lawsuits alleging that its actions both before and during the wildfires exacerbated the devastation Maui residents have suffered.
• The company is in discussions over the strategies the company can pursue and to determine whether it needs to hire legal and financial advisers, the people said.
• More customer lawsuits are expected in coming weeks to increase the costs of defending and settling claims for Hawaiian Electric just as its access to financing is being threatened.

J&J Holders to Get 8 Kenvue Shares for Each J&J Share in Exchange Offer – Barron’s, 8/17/2023

• Johnson & Johnson will issue just over eight shares of Kenvue stock for each of its own shares in what is likely to be an oversubscribed exchange offer totaling nearly $40 billion.
• The pricing period for the exchange offer ran from Monday through Wednesday.
• Johnson & Johnson said late Wednesday that the exchange ratio has been set at roughly 8.03 shares of Kenvue for each of its own shares.
• With Johnson and Johnson shares finishing Wednesday at $172.39, down 0.3% on the session, its holders who elect to make the exchange will get about $184 of Kenvue stock for each J&J share, based on Wednesday’s closing price for Kenvue, Barron’s estimates.
• The premium now is about 7%, which is in line with J&J’s plan to offer roughly $107.50 in Kenvue stock for every $100 in J&J stock.
• J&J offered the premium to give its holders an incentive to make the swap.

Blue Shield of California looks to cut reliance on CVS, taps Amazon – Reuters, 8/17/2023

• Non-profit insurer Blue Shield of California plans to depend less on CVS Health as its pharmacy benefit manager and work with others such as Amazon.com and Mark Cuban’s drug firm to reduce reliance on companies that negotiate drug prices.
• Blue Shield, which has health plans that cover 4.8 million members, said it will now work with five different companies, including Mark Cuban Cost Plus Drug Company, to provide “convenient, transparent access to medications while lowering costs”.
• Blue Shield will still retain CVS Caremark for its specialty pharmacy services, while Amazon will provide delivery of prescription medications as well as upfront pricing.
• Mark Cuban Cost Plus Drug Company will work to reduce surprise drug costs at the pharmacy pick-up counter.
• Blue Shield said it expects to save up to $500 million in annual drug costs once its multi-year strategy is fully implemented.

US ECONOMY & POLITICS

US Jobless Claims Decline in Sign of Resilient Labor Market – Bloomberg, 8/17/2023

• Applications for unemployment benefits fell by the most in five weeks, suggesting the resilient economy is making employers reluctant to reduce headcount.
• Initial claims decreased by 11,000 to 239,000 in the week ended Aug. 12, according to Labor Department data out Thursday.
• The figure was in line with the median estimate in a Bloomberg survey of economists.
• Continuing claims, which include those who have received benefits for longer than one week, rose to 1.72 million in the period through Aug. 5.
• The four-week moving average, which smooths out some of that volatility, increased to 234,250.
• On an unadjusted basis, claims decreased last week to 212,850.
• California, Texas and Michigan posted the largest declines, while applications rose in Virginia.

Fed Saw ‘Significant’ Inflation Risk That May Merit More Hikes – Bloomberg, 8/17/2023

• Federal Reserve officials at their policy meeting in July largely remained concerned that inflation would fail to recede and that further interest-rate increases would be needed.
• At the same time, cracks in that consensus were also becoming more apparent.
• “Most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy,” according to minutes of the US central bank’s July 25-26 policy meeting published Wednesday in Washington.
• But two Fed officials favored leaving rates unchanged or “could have supported such a proposal,” instead of the rate hike the Federal Open Market Committee ultimately authorized at the conclusion of the meeting, the minutes showed.
• “A number of participants judged that, with the stance of monetary policy in restrictive territory, risks to the achievement of the committee’s goals had become more two-sided, and it was important that the committee’s decisions balance the risk of an inadvertent overtightening of policy against the cost of an insufficient tightening,” the minutes said.
• The minutes also conveyed some optimism about the outlook as the Fed’s influential staff economists “no longer judged that the economy would enter a mild recession toward the end of the year.”
• Still, they expected economic growth over the next two years “would run below their estimate of potential output growth, leading to a small increase in the unemployment rate relative to its current level.”

NYC bans TikTok on government devices – CNBC, 8/17/2023

• New York City banned TikTok on government-owned devices on Wednesday, pointing to security concerns that have made the app a target of bipartisan scrutiny across the country.
• Congress already voted to ban TikTok on federal devices last year and several states have taken similar steps.
• The concern generally stems from TikTok’s ownership by China-based tech company ByteDance, since many policymakers fear that structure could make U.S. users’ information vulnerable to being accessed by the Chinese government, if forced to hand over information to comply with Chinese law.
• An NYC City Hall Spokesperson told WNBC in a statement that the ban was a result of the city’s Cyber Command’s conclusion that TikTok “posed a security threat to the city’s technical networks.”
• City agencies have 30 days to remove the app from government-owned devices.

EUROPE & WORLD

U.S. Plans New Tariffs on Food-Can Metal From China, Germany and Canada – Wall Street Journal, 8/17/2023

• The Biden administration plans on Thursday to announce new tariffs on can-making metal imported from China, Germany and Canada, a move that food companies say could lead to higher prices for some canned foods.
• The Commerce Department said an investigation found that steelmakers from the three countries sold their tinplate products in the U.S. at unfairly low prices, justifying new import duties.
• Chinese products would be subject to the highest tariffs of the three countries—a levy of 122.52% of their import value.
• That rate partly reflects Chinese companies’ refusal to cooperate with the investigation to prove their independence from the Chinese Communist Party, an administration official said.
• The U.S. presumes state-owned companies from economies such as China sell products in the U.S. at prices distorted by subsidies, unless these enterprises can prove otherwise.
• The tariff rates—still preliminary until a final ruling in January—are proposed at much lower rates of 7.02% for German companies including Thyssenkrupp Rasselstein and 5.29% for Canadian companies such as ArcelorMittal Dofasco.
• At the same time, the officials cleared five other trading partners—the Netherlands, South Korea, Taiwan, Turkey and the U.K.—of dumping allegations, narrowing the scope of the products covered by new tariffs.

Europe’s Stripe rival Adyen dives 28% after slowest sales growth on record – CNBC, 8/17/2023

• Shares of Adyen, the European payments giant taking on U.S. titan Stripe, fell nearly 28% on Thursday after the company reported worse-than-expected sales and a profit drop in the first half of the year.
• Revenue of 739.1 million euros ($804.3 million) over January to June 2023, up 21% from a year ago.
• This came in below analyst estimates of 853.6 million euros of revenue and 40% of year-on-year growth, according to Eikon data.
• EBITDA (earnings before interest, tax, depreciation and amortization) of 320 million euros, down 10% from 356.3 million euros in the first half of 2022.
• The first-half 2023 result matches an analyst prediction of 320 million euros profit.
• Adyen attributed the tepid print to increased hiring, firmer wages and to a shift in its North American customers’ business prioritization from growth to cost savings in the first half of the year.
• The company reported much slower sales growth than a year earlier — in the first half of 2022, the company said revenues grew 37% year-over-year.
• The firm also said that inventory write-offs led to a 6.3 million euro hit to EBITDA.

Global smartphone market to hit decade low in 2023 but Apple could take top spot, research shows – CNBC, 8/17/2023

• Global smartphone shipments this year are on track to be the worst in a decade, Counterpoint Research said in a report on Thursday, as the market is dragged down by the U.S. and China.
• However, Apple could become the biggest player in smartphones this year by shipments, as its high-end iPhone sales remain resilient, the report added.
• Counterpoint Research said it expects smartphone shipments in 2023 to decline 6% year-on year to 1.15 billion devices.
• “Asia is one of the major hurdles to positive growth, as headwinds halt the economic turnaround anticipated for China at the start of the year, and the broader region experiences intensifying declines across emerging markets,” Counterpoint said in its report.
• Chinese smartphone purchases, which used to average 450 million devices a year at their peak, have shrunk to 270 million per year — contributing as a major cause behind the decline in global smartphone sales, Karn Chauhan, senior analyst at Counterpoint Research told CNBC via email.
• North America continues to dampen the global recovery, with a “disappointing” first half of the year setting the region up for double-digit full-year declines, Counterpoint’s report said.

Arm to Skip ‘Lead-Left’ in Upcoming IPO and Instead Have Four Equal Banks – Bloomberg, 8/17/2023

• Arm Ltd., taking a page from Alibaba Group Holding’s landmark listing almost a decade ago, will split underwriter fees evenly among the four banks leading its initial public offering, according to people familiar with the matter.
• That’s a departure from how companies usually plan their IPOs, where banks vie for the lead-left spot for the chance to rake in the biggest share of fees.
• Barclays, Goldman Sachs Group, JPMorgan Chase and Mizuho Financial are set to be listed in Arm’s prospectus when it’s filed publicly this month, said the people, who asked not to be identified discussing private information.
• Arm is aiming to raise as much as $8 billion to $10 billion in a September IPO, valuing the company at $60 billion to $70 billion, Bloomberg News has reported.
• Bloomberg News has reported that companies such as Intel Corp. and Nvidia Corp. are considering participating in the share sale.

Unexploded Missile Suggests Moscow Is Rushing Weapons to the Front – Bloomberg, 8/17/2023

• A recently manufactured Russian missile recovered by Ukrainian forces suggests the invading army is running low on stocks of some advanced weapons, and is having to produce them more quickly to maintain the intensity of its war.
• The finding of a rocket with an unusually late production date was revealed by pictures analyzed by StateWatch, a Ukrainian non-governmental organization, and Bloomberg News.
• It adds to other evidence that the Russians are under pressure to fire missiles as soon as they roll off manufacturing lines to defy international sanctions and Western predictions they would run out.
• Ukrainian forces have been edging toward barriers of prepared Russian defenses in the south of the country since early June, while targeting artillery and supply lines to create weak spots that might enable a breakthrough.
• The missile found in Ukraine’s northern Sumy province in June came from a Tornado-S Multiple Launch Rocket System.
• Casing markers show the projectile was made just the previous month, on May 19.
• According to StateWatch, batches normally go through several months of tests before they are used and appear on the front line.
• The casing also showed an unusually close expiry date of Sept. 12 this year, according to StateWatch, another possible indication that Russian manufacturers are cutting corners to rush missiles to the front line.
• Some parts had been soldered manually, while components were manufactured by both Russian and U.S. companies, including Intel Corp-owned Altera and Analog Devices.

China Told State Banks to Escalate Yuan Intervention – Bloomberg, 8/17/2023

• Chinese authorities told state-owned banks to step up intervention in the currency market this week, in a push to prevent a surge in yuan volatility, according to people familiar with the matter.
• Senior officials are also considering the use of tools such as cutting banks’ foreign-exchange reserve requirements to prevent a rapid depreciation in the currency, said the people.
• The request came as the yuan fell toward 7.35 per dollar, a level that top leadership has been paying close attention to, they added.
• Authorities were also checking whether domestic companies helped accelerate yuan declines by conducting speculative trades against it, said the people, who requested not to be named as they are not authorized to discuss the matter.

BAE Bets Big on Space Warfare With $5.6 Billion Acquisition – Bloomberg, 8/17/2023

• BAE Systems’s biggest purchase ever, the $5.6 billion deal for Ball Aerospace, extends the UK defense contractor’s reach into space, a frontier the company predicts will become increasingly important for warfare.
• The Ball unit’s position in both the civil and military space markets was a key reason BAE’s move, it said.
• On a conference call, Chief Executive Officer Charles Woodburn signaled he may make more acquisitions in the sector.
• “We see space as an increasingly important domain of future warfare,” Woodburn said on a conference call.
• “This acquisition really accelerates our position.”
• The growing use of satellites for protection and defense is driving up spending, Tom Arseneault, BAE’s US CEO, said on the call.
• Ball Aerospace, located in Colorado along with the US Space Command, is an established supplier for major satellite and spacecraft providers, he said.

Factmonster – TODAY in HISTORY

• Robert Fulton’s steamboat, the Clermont, began its trip up the Hudson River to Albany. – 1807
• Fort Sumter, S.C. was bombarded by Union ships during the Civil War. – 1863
• Prospectors found gold in Alaska, a discovery that set off the Klondike gold rush. – 1896
• Indonesian nationalists proclaimed independence from the Netherlands. – 1945
• 18-year-old Peter Fechter was shot and killed by guards at the Berlin Wall, spurring riots. – 1962
• Hurricane Camille devastated the Gulf Coast, killing 248 people. – 1969
• The first successful trans-Atlantic balloon flight landed outside of Paris. – 1978
• S. swimmer Michael Phelps won his eighth gold medal, breaking the record set by Mark Spitz in the 1972 Games. Phelps also set the record for the most golds in a single Olympics. – 2008

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Historical performance is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

All investing involves risk including loss of principal. No strategy assures success or protects against loss. Any economic forecasts set forth may not develop as predicted. 

All company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.

Material presented is excerpts derived from third party content and you may need a subscription to access the full the content. The views and opinions expressed are those of the authors and do not necessarily reflect the views of Pence Financial Group or LPL Financial.

Prior to making any investment decision please consult your financial advisor regarding your specific situation.